Plaintiffs v Defendants

2 Mr and Mrs Rado had five children: Julie, Tania, Denise, Stephen and Michael. The children have not been particularly involved in the businesses over the years. Recently, Stephen has become involved in the businesses, but control has remained with Nancy. Prior to Mr Rado's passing, and for several years after, Nancy was not actively involved in the businesses.

3 In 1982, Mr Keeghan married Tania Rado and commenced working for the businesses in one form or the other. Mr Keeghan was appointed the chief executive officer of Standard Roads in March 1994. Mr Keeghan continued to act as the chief executive officer of the TPC Group of companies until 29 June 2017.

4 After Mr Rado died in 2001, the civil construction, asphalt and quarrying businesses were sold. The remaining businesses were predominantly property development companies, which included the TPC Group of companies (the plaintiffs in this proceeding).

5 Between 2001 and 2012, the TPC Group of companies acquired 37 properties and achieved rezoning on another four properties that it owned before 2001.

6 Under Mr Rado's will, Mr Keeghan was appointed an executor and trustee of Mr Rado's estate along with Mrs Rado and Mr Rado's accountant, Mr Ian Lee. Mr Lee became a trusted adviser of Mrs Rado after Mr Rado died and was appointed a director of several of the TPC Group companies, along with Mr Keeghan and Mrs Rado.

7 In 2007, Mr Keeghan and Tania separated and in 2008 filed for divorce. At that time, Mr Keeghan became concerned about his position within the Rado group and sought to safeguard his role by entering into an agreement with Nancy for the provision of his services in exchange for a 50 per cent share of profits from some of the companies within the Rado group (2007 agreement).

8 The circumstances surrounding this agreement and the specifics of the agreement are disputed, and conflicting evidence has been given. In any event, at most, the terms of the agreement were reflected in minutes of meetings of directors;[1] the way these minutes came into existence is also a matter of dispute. It is not necessary to resolve these factual disputes for present purposes.

9 It is sufficient to note that Mr Lee, Nancy, and Mr Keeghan agreed to rescind the 2007 agreement in December 2008[2] and negotiate a more formal agreement, reflecting the 'general principles' of the 2007 agreement.

10 Consequently, the parties entered into negotiations and then, on 7 December 2010, entered into the Property Development Services Agreement (the PDSA).

11 The arrangement involved Mr Keeghan's company, Castleway Pty Ltd as trustee of the Castleway Trust, entering the PDSA with several companies comprising the TPC Group Entities, which constituted eight members of the TPC Group of companies and were in substance the entities that carried on the business of property acquisition and development.

12 Also on 7 December 2007, Mr Keeghan entered into an Employment Services Agreement (ESA) with SR Consolidated Pty Ltd to continue his employment as the chief executive officer of the TPC Group of companies (the employment agreement).

13 Under the employment agreement, Mr Keeghan was to receive $300,000 per annum. Under the PDSA, Castleway was entitled to remuneration through a service fee, calculated by reference to the TPC Group Profit; a final service fee taking into account certain adjustments on termination of the agreement; and commission for profit achieved on projects introduced to the TPC Group of companies. As events have transpired, the PDSA has been the main source of revenue from the TPC Group of companies for Mr Keeghan.

14 The PDSA's operation was backdated to commence on 1 July 2007 and was to last for 10 years with extensions by agreement. Mr Keeghan, as he was entitled, terminated the agreement on 29 June 2017, one day prior to the expiration of the 10-year term of the PDSA.

15 An issue arose shortly after the PDSA was agreed, regarding the effect of the arrangements for paying the service fee under that agreement. The construction of this provision and the calculation of the service fee is an issue in the case, which I will discuss further below. For present purposes, it is sufficient to say that the calculation is made with reference to the TPC Group taxable profit, determined from the income tax returns.

16 The issue at this time was that an estimated accrual of the service fee was included in the income tax returns, with the consequence of reducing the TPC Group's taxable profit in the year in which the service fee was paid or accrued. This then operated to reduce the service fee payable for that year.

17 The parties agreed that this was inconsistent with the intent of the PDSA and as a consequence the calculation of the service fee in the PDSA was amended. The amendment to the PDSA was approved by the TPC Group board on 21 March 2011.[3] The amendment added back to the group profit 'any service property procurement & development fee paid or accrued under this agreement included in the taxable income (loss) as per income tax returns for the TPC Group Entities and associated entities set out in Annexure A to this Agreement.'[4]

18 As detailed below, the PDSA provided for Castleway to receive a share of the profits earned by the TPC Group entities.

19 This amendment to the PDSA is relevant to identifying the purpose of the PDSA. In the absence of the amendment, the TPC Group Profit calculation would not have been a proper calculation of the profit to be shared, as the amount of profit to be shared would have been reduced by the estimate of the amount that Castleway was to receive as its share of the TPC Group Profit. I will henceforth refer to the PDSA as amended, merely as the PDSA.

20 Under the PDSA, the TPC Group was to pay the manager (Castleway) a property procurement and development fee (the service fee) in respect of each financial year during the term of the agreement. The service fee was to be calculated by the TPC Group's nominated accountant based on the TPC Group Profit in each financial year during the term in the manner set out in Schedule 2 to the PDSA.

21 The PDSA defines TPC Group Profit and TPC Group Loss as 'net profit or loss (as the case requires) of the TPC Group calculated in accordance with Schedule 2, and references to calculation of TPC Group Profit shall include the calculation of the net profit or loss for the TPC Group.'

22 The service fees for the 2008, 2009, 2010 financial years were calculated and, save for the 2010 financial year where there was no profit for the TPC Group, invoices were sent by Castleway for the calculated fee and the service fees were paid. In 2011, Mr Keeghan raised concerns about the quantity of some of the expenses included in the service fee calculation. Nonetheless, the service fees for the 2011, 2012, 2013 financial years were calculated, invoiced and paid. In 2014 disputes arose between Mr Keeghan and Nancy, and have continued since, on the calculation of Castleway's entitlements under the PDSA. The 2014, 2015, 2016 service fees have been calculated by the independent accountant, but have not been paid due to Mr Keeghan disputing the calculations.

23 Clause 9 of the PDSA contains a procedure for the resolution of disputes in connection with the PDSA. The procedure calls for a notice of dispute to be given identifying the issues in dispute. Such dispute notices were given by Castleway in relation to the nominated accountant's calculation of the TPC Group Profit for the 2014, 2015 and 2016 financial years disputing the inclusion of certain expenses in the calculation of the profit of the TPC Group Entities.

24 The plaintiffs (which are the TPC Group Entities under the PDSA) instituted proceedings seeking declarations as to the proper construction of the PDSA in an attempt to resolve the treatment of the disputed expenses under the PDSA. Castleway, in its defence and by counterclaim, also raises issues on the construction of the PDSA and seeks declarations and other relief. Both parties agreed that the dispute resolution procedure under clause 9 of the PDSA not be followed and that all the disputes raised by the various notices be determined in this proceeding.

25 The TPC Group admits that it owes Castleway some $30 million for the service fee for the financial years 2014, 2015, 2016 and 2017. Castleway is claiming it is owed a larger sum in each of the 2014, 2015, 2016 financial years. The 2017 service fee is yet to be calculated, however, Castleway challenges the proposed inclusion of a $20 million donation in the calculation of the 2017 Group profit, this is discussed in detail below.

26 Castleway has issued invoices for the 2014, 2015 and 2016 financial years for the 'undisputed' amounts and claims that these should be paid immediately, as is allowed for under the PDSA. The TPC Group says that Castleway is not entitled to issue these invoices, and the TPC Group is not obliged to pay any sum until the claims are resolved and Castleway issues the TPC Group a single invoice for each year for the final undisputed sum.

27 Castleway claims that expenses of the TPC Group, not incurred in the normal course of business of the TPC Group, have been wrongly taken into account to reduce the TPC Group net profit and thus reduce the service fee due to Castleway. These expenses of the TPC Group relate to certain legal fees and accounting fees, costs incurred in connection with the Rado memorial reserve at Tynong Park, costs incurred in connection with a dispute with the minority shareholder in SR Consolidated, certain losses, and director fees paid to Mr Lee.

28 Castleway says that although these expenses might be deductible expenses for the purposes of the Income Tax Assessment Act 1997, these expenses should not have been taken into account in calculating the net profit of the TPC Group for the purposes of calculating the service fee, as they were not incurred in the normal course of business of the TPC Group. Castleway contends that on the proper construction of the PDSA and/or alternatively under an implied term of the PDSA, only expenses incurred in the normal course of business should be taken into account in calculating the TPC Group Profit.

29 Castleway says that the accounting fees were incurred for the benefit of members of the Rado family, in respect of excluded entities, for planning and implementing Nancy's asset realisation plan and were not incurred in earning the income of the TPC Group.

30 The same objection relates to the legal expenses, that is, they were incurred for the benefit of members of the Rado family, negotiating proposed variations to the PDSA, for planning and implementing Nancy's asset realisation plan, or in connection with this proceeding.

31 The extent that the expenses of concern were correctly categorised as expenses incurred for the benefit of the Rado family and not for the benefit of the TPC Group is disputed.

32 In addition, Castleway says that fees payable to Mr Lee as a director of the TPC Group companies have been excessive and the excess amount relates to services that Mr Lee is providing to Nancy personally and for implementing her asset realisation plan and were not incurred in the normal business of the TPC Group.

33 Claims are also made in relation to the calculation of the commission payable to Castleway. Under the PDSA, Castleway is entitled to commission in the event that certain projects are completed after the PDSA has been terminated. There is a dispute on the construction of the PDSA as to which projects should or should not be included in the commission calculations.

34 A matter related to the disputed expenses but deserving of separate consideration relates to the large charitable donation of $20 million that Adaz Nominees Pty Ltd (one of the TPC Group Entities) (Adaz Nominees) purported to make on 27 June 2017. The TPC Group claim that it is to be taken into account as a tax deductible expense in calculating the 2017 financial year service fee.

35 Castleway disputes the entitlement of the TPC Group to take the donation into account on two basic grounds. First, Castleway says that the expense was not incurred in the normal course of business and as such should not be taken into account in calculating the profit of the TPC Group for the purposes of calculating the service fee for the 2017 financial year. Secondly, Castleway seeks to have the donation ignored as it was made as part of a wrongful conspiracy to deprive Castleway of some $8 million of service fees or made in breach of directors' duties and the like, being the sum that Castleway will lose if the $20 million is taken into account as an expense in calculating the TPC Group Profit.

36 As it is, I have found that the gift was not made for any improper purposes or part of any conspiracy or breach of duties by the directors of the donor company. As I will elaborate on below, I find that the decision to make the gift was made by Mrs Rado in relation to her own property and was not seen by either Mrs Rado or Mr Lee as having anything to do with the conduct of the business of the TPC Group. It was a decision relating to the use of the Rado family's share of the profits and was not intended by Mrs Rado to have any repercussion on the share of the profits due to Castleway.

37 It is convenient to deal with the donation first as it most usefully exposes the proper construction of the PDSA. I should add that proper construction of the PDSA includes the implying of a term in the PDSA.

38 The idea of the Rado family establishing a charitable trust under its control and the gift by her of a substantial sum to the charity, was first raised between Nancy and Mr Lee in November 2016.

39 Mr Keeghan was not involved in these discussions and was not informed of the decision to establish the charity and to make a gift to it of $20 million until 16 June 2017, when the actual donation was to be affected.

40 As mentioned, Mr Lee, along with Nancy and Mr Keeghan, was a trustee and executor of Mr Rado's will. Mr Lee had been a partner of William Buck from 1978 to 30 June 2008, and thereafter at Grant Thornton chartered accountants until June 2014, and has been providing accounting, taxation and advisory services for the Rados and associated entities since around 1991 or 1992. Mr Lee had been appointed director to the plaintiff companies at different times from 2001 to 2015, and remained in those roles to the present time. Mr Lee resigned from Grant Thornton at 30 June 2014, and thereafter continued to advise Nancy on her financial affairs and to act as a director of the Rado companies.

41 On Nancy's instructions, in early 2017, Mr Lee had a company incorporated to act as the trustee of the proposed charity (the Rado foundation). Mr Lee also arranged for a suitable trust deed to be drawn up and executed to establish the Rado foundation. Mr Lee arranged for approval from the Australian Tax Office (ATO) for the company to act as a charity and thereby be a vehicle to which tax deductible donations could be made.

42 Mr Lee arranged for expert advice to be obtained on possible beneficiaries of the Rado foundation. All this was done without consulting Mr Keeghan, despite Mr Keeghan being the chief executive officer of the TPC Group, including Adaz Nominees which was the company to make the donation of $20 million. Mr Lee agreed that the steps he took to establish the charity were hidden from Mr Keeghan but said that it was not deliberately done.[5]

43 At first, I considered it unusual that Mr Keeghan was not informed about the proposed donation and that it was kept hidden from him and thought there might have been some merit in the suggestion by Mr Keeghan that the gift was part of a plan to reduce Castleway's entitlements under the PDSA. My concerns were assuaged by the evidence of Nancy who said that Mr Keeghan was not told of the charity until 16 June 2017, because it was not his business and it was her money that was being dealt with. During cross-examination, the following exchange occurred:[6]

Mr Golvan: If you were just intending to make a generous charitable donation from the TPC Group, as you say, wouldn't Ged - -

Nancy: -?---Excuse me I didn't really look at it as being a charitable donation from the TPC Group. It was my money. I was making a donation with my money.

Mr Golvan: But that money was going to be provided from the profits of the TPC Group?

Nancy: From my own company, yes. My company, and only my company.

Mr Golvan: Wouldn't Ged be the first person you'd want to know about what your intentions were?

Nancy: No, I would not discuss anything regarding my intentions with my money, which upset him very much.

Mr Golvan: Upset him because you knew that it was going - - -?

Nancy: He repeatedly said he never knew where I was putting my money I was taking out of the company. I told him it was my money and nothing to do with him.

44 Stephen gave evidence that, when the $20 million donation was first raised with him, he did not consider that it would have any effect on Castleway's entitlements under the PDSA and that he only realised that the donation would adversely affect the service fee when that was brought to his attention in about June 2017, by Mr Lee, after Mr Skinner, who was the accountant at Grant Thornton primarily responsible for reporting on the net profit under the PDSA, provided accruals for the year.

45 Mr Lee initially swore an affidavit that was used in proceedings in this Court in opposition to an application to obtain an injunction to restrain the donation moneys being paid over to the foundation, where he said that when the idea of the donation was raised he did realise that the donation would reduce Castleway's service fee. In his oral evidence, however, he said that he was mistaken when he made the affidavit and that he only realised that the donation would adversely affect the service fee when Mr Skinner provided the accruals for the 2017 financial year.

46 Mr Lee gave evidence that the donation would provide a substantial tax benefit for the TPC Group, and after Nancy proposed making a sizeable donation, Mr Lee said that he 'chose the figure of $20 million as it was a figure representing approximately 20 per cent of the net family worth and given the size of the group's profits, a tax deduction of $20 million could be utilised by reducing the tax payable by approximately $10 million for the financial year 2017.'[7]

47 Although the intentions and understandings of Nancy and Mr Lee of the effect of the donation on the calculation of the service fee are irrelevant to the proper construction of the PDSA, their evidence highlights that they did not consider the donation to be a transaction carried out in the normal business of the TPC Group. Both considered the donation was not a matter that a director of Adaz Nominees need know about. Both Mr Lee and Mrs Rado considered that the donation was not a matter that was relevant to Mr Keeghan's duties as the chief executive officer of the TPC Group but was a matter solely related to the distribution of Mrs Rado's property.

The construction of the PDSA and the $20 million donation

48 Both parties agree that the PDSA is not ambiguous. The TPC Group contend that the background facts are not relevant to the construction of the PDSA. Castleway contends that background facts are still relevant in construing a contract. I hold that authority binds me to disregard the background facts where there is no ambiguity in the words of the agreement, save for where facts are notorious and knowledge can be presumed.

49 In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[8] Bell and Gageler JJ said that until the question whether ambiguity must be shown before a court interpreting a written contract can have regard to background circumstances is squarely raised and determined by the High Court, 'the question remains for other Australian courts to determine on the basis that [Codelfa Construction Pty Ltd v State Rail Authority of NSW[9]] remains binding authority.'

50 Until the High Court considers the issue, Mason J laid down the correct approach in Codelfa Construction, where his Honour said:[10]

The true rule is that evidence of surrounding circumstances is admissible in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.

It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances. See Heimann 38 SR (NSW) 695.

51 In Mt Bruce, Bell and Gageler JJ referred to Royal Botanic Gardens and Domain Trust v South Sydney City Council,[11] where the High Court (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ) said that the extent to which 'background' was admissible in contractual interpretation was governed by Codelfa Construction. The point was reiterated in Western Export Services Inc v Jireh International Pty Ltd.[12]

52 French CJ, Nettle and Gordon JJ in Mt Bruce set out the legal principles to be applied in interpreting a written contract as follows:[13]

The rights and liabilities of parties under a provision of a contract are determined objectively,[14] by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.[15]

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.[16] That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[17]

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[18]

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating."[19] It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.[20]

Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result."[21] Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience."[22]

These observations are not intended to state any departure from the law as set out in Codelfa Construction and Electricity Generation.[23] We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.[24]

It is appropriate to consider each construction issue in turn.

53 From the above passages it can be seen that their Honours' reference to use of background circumstances in construing the contract is only applicable in the case where the language of the written contract is ambiguous or capable of more than one meaning (where there is a constructional choice).

54 As indicated, neither party contends that there is ambiguity in the written contract.

55 The TPC Group contends that as the gift is a tax deduction, it will reduce the Total Taxable Income as per income tax returns of the TPC Group Entities and thus will accordingly reduce the TPC Group Profit by $20 million. Castleway does not dispute that the donation will be a tax deduction and does not dispute that as such the donation will reduce the Total Taxable Income as per income tax returns of the TPC Group Entities by $20 million.

56 Rather, Castleway contends that the donation made by Adaz Nominees was not an expense incurred in the normal course of business of the TPC Group and thus should not be taken into account in the calculation of the service fee. Castleway says that on its proper construction and/or alternatively by way of an implied term, the formula for the calculation of the service fee does not treat the donation as a deductible expense as it was not incurred in the normal course of business.

57 The TPC Group contends that, as donations to charity by TPC Group companies are deductible for income tax purposes, the donation would be treated as an expense in the income tax returns under the formula and thus flow through to the calculated net profit of the TPC Group.

58 At this stage, it is necessary to set out a substantial portion of Schedule 2 to the PDSA that sets out the method of calculating the service fee.

Schedule 2

Property Procurement & Development Fee

1. Calculation of Service Property Procurement & Development Fee (Service Fee)

The Service Fee for each Financial Year during the Term shall be determined based on TPC Group Profit for that Financial Year and calculated in accordance with the following table.

If TPC Group Profit falls within Band 1 to Band 7 (both inclusive) the Manager shall be entitled to a Service Fee calculated in accordance with column 5 'Aggregate Amount payable to Manager.' If the calculation of TPC Group Profit results in a loss (TPC Group Loss) then no Service Fee will be payable.

$75,000 plus 20% of TPC Group Profit above $500,000

$175,000 plus 25% of TPC Group Profit above $1 million

$425,000 plus 25% of TPC Group Profit above $2 million

$675,000 plus 30% of TPC Group Profit above $3 million

$975,000 plus 30% of TPC Group Profit above $4 million

$1,275,000 plus 40% of TPC Group Profit above $5 million

For the purposes of this Agreement TPC Group Profit means the TPC Group's share of adjusted taxable profit before income tax on a consolidated basis calculated as follows:

Total Taxable Income (loss) as per income tax returns for the TPC Group Entities and associated entities set out in Annexure A to this Agreement

Inter-entity current year taxable dividends or taxable trust distributions declared

Notional non assessable gain (loss) on pre-CGT assets (See Note 1 below)

Current year post CGT capital losses not otherwise offset in taxable income (loss)

Carried forward capital losses offset against current year capital gains

Any post 1 July 2007 dividend paid from profits for shares in any TPC Entity sold or disposed of to external parties

Carried forward income losses offset against current year taxable income (loss)

Percentage share owned by external parties of non wholly owned TPC Entities (See Note 3 below)

Any carried forward TPC Group Loss (See Note 2 below)

The parties acknowledge that the calculation of TPC Group Profit for the Financial Year ending 30 June 2008 is attached as Annexure C to this Agreement. The parties agree that if there is any dispute regarding calculation of TPC Group Profit in any subsequent Financial Year the calculation shall (where practicable) be undertaken in accordance with the principles and standards reflected in the calculation of TPC Group Profit for the 2008 Financial Year.

Note 1: Notional non assessable gain (loss) on pre-CGT assets

"Notional non assessable gain (loss) on pre-CGT assets" is the difference between the net sale proceeds on sale of the Land & Properties or Shares listed below and the notional market value for the relevant Land & Properties or Shares as agreed by the parties and (in the case of Land & Properties) set out below or (in the case of Shares) calculated as set out below.

A surplus amount is a gain (to be added to the calculation of TPC Group Profit) a deficit amount is a (loss) (to be subtracted from the calculation of TPC Group Profit).

Land & Properties

The "notional market value" for pre-CGT land and properties is the value as per the council or land tax unimproved values as at 1 July 2007 for the following "listed assets".

Tynong Pastoral Co Pty Ltd ATF Tynong Pastoral Unit Trust

Tynong Pastoral Co Pty Ltd ATF Tynong Pastoral Unit Trust

Tynong Pastoral Co Pty Ltd ATF Tynong Pastoral Unit Trust

50% interest in 179 Currumburra Road Ashmore QLD

Shares The 'notional market value' for shares is the recorded net assets as at 1 July 2007 adjusted for any increase (decrease) in land and property values as at 1 July 2007 for the following 'listed assets':

Note 2: Carried forward TPC Group Loss

If the calculation of TPC Group Profit results in a loss (TPC Group Loss) in any Financial Year (commencing with the Financial Year ended 30 June 2008), the amount of the TPC Group Loss shall be carried forward and offset against the adjusted taxable income for the TPC Group for the following Financial Year.

Whilst a TPC Group Loss shall be carried forward and set-off in the calculation of TPC Group Profit in the next Financial Year, the Manager shall not be required to make any payment to the TPC Group in respect of any TPC Group Loss (other than as expressly set out in the Agreement).

Note 3: Wholly Owned Entities and Partly Held Interests

The parties agree that the TPC Group Profit shall include only the TPC Group's proportionate share of profit attributable to any entity, trust, partnership or joint venture for which the TPC Group does not hold a 100% ownership interest.

The parties acknowledge and agree that, as at the date of this Agreement, columns 1 and 2 of the table in Annexure A are entities comprising a 100% TPC Group ownership interest. The companies, trusts, partnerships and joint ventures in which the TPC Group has a part interest only are set out in columns 3, 4 and 5 of Annexure A.

3. Adjustments

Amended Income Tax Assessments

If for any Financial Year ending during the Term there is an amended income tax assessment for any TPC Entity the amount of the adjustment shall be offset (added or subtracted as the case requires) against the calculation of TPC Group Profit for the Financial Year in which the amended assessment is finalised.

Prior Year Errors

If an audit conducted under clause 3.5 of the Agreement reveals an underpayment or overpayment of the Service Fee for any Financial Year or the TPC Group and the Manager otherwise determine that there has been an overpayment or underpayment due to an error, omission or incorrect calculation of the Service Fee the amount of the underpayment or overpayment shall be adjusted (added or subtracted as the case requires) against the calculation of TPC Group Profit for the Financial Year in which the underpayment or overpayment was detected.

No Interest on Adjustments

The parties agree that any adjustment shall not be subject to default interest under clause 3.7 of this Agreement.

4. Termination Adjustment and Final Service Fee

The TPC Group Profit for the final Financial Year (or part Financial Year) of the Term shall be adjusted as follows:

(a) TPC Group Profit shall be reduced by an amount equal to the unrealised capital losses as at the date of termination or expiry of the Agreement;

(b) TPC Group Profit shall be increased by an amount equal to unrealised capital gains as at the dated [sic] of termination or expiry of the Agreement.

The parties agree that if the Term ends on a date other than at the end of a Financial Year, the Service Fee shall be reduced on a pro rata basis for the period between the date of termination and the end of the relevant Financial Year.

5. Excluded Entities

The parties acknowledge and agree that the following entities are not part of the TPC Group and will not be included for the purpose of calculating TPC Group Profit:

(a) Corilla Pty Ltd ATF Corilla Unit Trust

(b) Dana Investments Pty Ltd ATF Dana Investments Joint Venture

(c) Trabeel Pty Ltd ATF Collins Street Joint Venture

(d) Racmon Pty Ltd ATF Rado Investment Trust

(e) Kashalight Pty Ltd

(f) TPC Group Pty Ltd

(g) The Promenade Berwick Pty Ltd

(h) Tinapher Pty Ltd

(i) Rado Management ATF Rado Management Trust

(j) Roading Management ATF Roading Management Trust

(k) Eden Valley Escape Pty Ltd

6. New TPC Group Entities

The parties agree that for the purpose of calculating TPC Group Profit, the TPC Entities will include any entity established by the one or more TPC Group Entities after the date of this Agreement for which the Manager provides property development services under this Agreement.

7. TPC Group Projects

The parties agree that the property development projects being undertaken by the TPC Group (or any of them) as at 1 July 2007 are listed in Annexure B to this Agreement (TPC Group Projects).

8. Variation of Calculation Mechanism for TPC Group Profit

The parties agree that the calculation mechanism in this Schedule 2 may be varied from time to time by unanimous agreement of the Executive Director and each of the directors of the TPC Entities.

59 As discussed, the PDSA makes provision for the payment of fees or compensation to Castleway in three circumstances. First, the agreement provides for the payment of an annual service fee based on the profit before tax of the TPC Group for the relevant financial year (the service fee).

60 Secondly, the agreement provides for a termination adjustment and final service fee to be paid to Castleway, under which the annual service fee is adjusted to take in unrealised profits or losses on all assets of the TPC Group as valued on the termination date or expiry of the agreement (the termination adjustment).

61 Thirdly, the agreement provides for the payment of commission following the termination of the agreement. The commission is payable to Castleway in the event that a profit is made by the TPC Group after the termination of the agreement on an introduced project (the commission).

62 In determining the meaning of terms in a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

63 The recitals to the PDSA are relevant to determining the purpose of the contract. They are as follows:

1. Entities associated with the Executive Director and the Manager have provided property development services to the TPC Group from time to time.
2. In a meeting held on 17 June 2008 the Executive Director and a director of the TPC Group Entities discussed a proposal for the continued provision of property development services to the TPC Group.

1. The TPC Group wishes to formalise the arrangements for the provision of services and has requested that the Manager provides property development services to the TPC Group on the terms set out in this Agreement.

1. The Manager has agreed to provide those services to the TPC Group on the terms set out in this Agreement.
2. The Executive Director is executive director and controller of the Manager.

64 The schedule detailing the service fee payable is expressed in terms of a certain percentage of the TPC Group Profit - in other words, a share of the profit. The fact that the percentage is based on a sliding scale does not alter the essential nature of the transaction, that of a share of the profit.

65 The purpose of the PDSA is for the TPC Group to retain and receive the benefit of Mr Keeghan's services in property development through Castleway, in exchange for a share of the profits of the TPC Group.

66 Central to the definition of TPC Group Profit and TPC Group Loss, (set out above at paragraph 21) is the term 'net profit or loss.' The definition of TPC Group Profit and TPC Group Loss does not seek to ascribe to the ordinary meaning of the words 'profit or loss' any meaning that would detract from what a reasonable businessperson would understand those words to mean. Castleway contends that a reasonable businessperson would understand those words to mean the commonly accepted meaning of the words 'profit or loss' in a business context: that is, profit or loss as calculated by deducting from the income of the business the expenses incurred in earning that income, or in other words, expenses incurred in the normal course of business.

67 Thus, Castleway submits that the expenses taken into account in calculating the TPC Group Profit or Loss must only be those relevant in calculating the 'profit or loss' that is used to calculate the TPC Group Profit or Loss.

68 Alternatively Castleway contends that to give the agreement commercial efficacy it is necessary to imply a term in the adjustment to the income calculated before tax, to deduce tax deductible expenses, such as the donation, that were not incurred in the normal course of business. It is only by doing so, says Castleway, that the true meaning of 'profit or loss' in the context of a commercial business, can be derived. Unless such a term is implied or construed, the PDSA will give rise to ridiculous and unintended results such as that would arise if the $20 million gift decided on by Nancy was taken into account as a relevant expense to calculate the service fee.

69 The TPC Group denies that on its proper construction the PDSA should be interpreted as Castleway suggests or that such a term should be implied. The TPC Group says that as the donation is a tax deductible gift, that is the end of the matter. The TPC Group contends that it is irrelevant that this expense was not incurred in the normal course of business of the TPC Group. Further, the TPC Group argues that the expense was of the kind that was in the past treated as a deductible expense.

70 In this regard, Mr Keeghan gave evidence that from time to time the TPC Group would make small donations to charities of $5,000 up to $15,000. These, however, are of a different category to a $20 million donation. Such gifts could be classified as being made in the normal course of business, such as many businesses do from time to time as part of giving back to the community or part of their civic duties. A decision by Nancy to establish a charitable foundation and to donate $20 million, without consulting the chief executive officer, Castleway says clearly falls into a separate category.

71 On one hand, the formula in Schedule 2 uses the 'Total Taxable Income (loss) as per income tax returns for the TPC Group Entities' in calculating the TPC Group Profit or Loss, and on the other hand, the formula in Schedule 2 concludes with the 'TPC Group Profit/TPC Group Loss' which is defined by the PDSA to mean 'the net profit or loss (as the case requires) of the TPC Group calculated in accordance with Schedule 2.'

72 Thus, insofar as the Total Taxable Income may have been calculated by taking into account expenses that would not be taken into account in calculating the profit of the TPC Group according to the meaning of the word 'profit' as understood by reasonable businesspersons, there is an ambiguity or contradiction in the application of the formula set out in Schedule 2.

73 In my opinion, that ambiguity or contradiction is resolved by reference to the other terms of the PDSA, which disclose that the purpose of the PDSA is a profit sharing agreement. In my opinion, construed in that light, the proper construction of Schedule 2 is that only expenses relevant to the calculation of the profit or loss in the sense understood by reasonable businesspersons should be taken into account in calculating the TPC Group Profit or Loss.

74 The defendants rely on terms implied into the PDSA by operation of law that requires a contracting party to do all things necessary on its part to enable the other to have the benefit of their contract, and to act reasonably and in good faith so as not to frustrate or prevent their contract's commercial purpose being fulfilled.[25]

75 The plaintiffs contend that a contract must fall within a particular 'class' before such terms may be implied into it. The defendants dispute this and submit that the implied terms are an incident of commercial contracts, and the content of the implied term is informed by the circumstances and commercial purpose of the contract.

76 Alternatively, the defendants rely on terms implied to give business efficacy to the PDSA, which would preclude expenses not incurred in connection with the TPC Group's normal business activities from operating to reduce the service fee. The defendants submit that such terms satisfy the fivefold test identified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[26] being that:[27]

Such a term would be both reasonable and equitable. It is capable of clear expression. It does not contradict any express term of a contract, but adds to it; and it gives business efficacy to the contract. In the light of the provisions in the refinery agreement it was something so obvious that it went without saying, and if an officious bystander had asked whether that was the common intention of the parties the answer would have been "Of course".

77 In my opinion, the construction or implied term submitted by Castleway ought to be accepted. The PDSA was a profit sharing agreement. The agreement made plain that what was being calculated was the profit or loss of the TPC Group. These terms are widely, if not universally, used in business and have an established meaning of including only expenses incurred in earning the income of the business or, in other words, in the normal course of business.

78 With reference to the BP Refinery (Westernport) Pty Ltd v Shire of Hastings test, the implied term goes without saying, it is necessary to give the agreement commercial efficacy, is fair and reasonable, capable of clear expression and does not contradict any express term in the agreement, but adds to it.

79 The TPC Group refers to the provision in Schedule 2, which provides that:

The parties acknowledge that the calculation of TPC Group Profit for the Financial Year ending 30 June 2008 is attached as Annexure C to this Agreement. The parties agree that if there is any dispute regarding calculation of TPC Group Profit in any subsequent Financial Year the calculation shall (where practicable) be undertaken in accordance with the principles and standards reflected in the calculation of TPC Group Profit for the 2008 Financial Year.

80 The plaintiffs contend that the 'principles and standards' reflected in the calculation of TPC Group Profit for the 2008 Financial Year as contained in Annexure C encompass the inclusion of charitable donations and accounting expenses incurred for Rado family members that are otherwise permissible to be treated as an allowable deduction by members of the TPC Group if paid by them.

81 In my opinion, the 'principles and standards' referred to are no more than the principles and standards used in the adjustments that are made in each column in the table on Annexure C. These are merely adjustments to get from 'Taxable Income' to 'Adjusted income for Profit Sharing Calculation.' I am not satisfied that the annexure demonstrates any 'principles and standards' relevant for determining how expenses not incurred in the normal course of business are to be treated in the calculation of the service fee.

82 In my opinion, to construe the PDSA as to permit the profit to be shared to be calculated by deducting expenses that were not incurred in the normal course of business, would be contrary to and would defeat the purpose of the PDSA.

83 If it were otherwise, it would be possible for all the profits of the TPC Group to be distributed to related entities prior to the calculation of the service fee, for example, with the possible effect that at the end of the financial year, after services have been provided, there is no TPC Profit for Castleway to share in.

84 Further, the variation to the PDSA agreed to by the parties concerning the exclusion of the service fee in the calculation of the TPC Group Profit or Loss, referred to above, supports such a finding and evidences that it was not the parties' intention for the service fee calculation to not result in a share of the TPC net profits for Castleway. The variation allows for the service fee to be taken into account as an adjustment, after the taxable income is determined.

85 I find that on the proper construction of the PDSA, or alternatively, as an implied term to give business efficacy to the agreement, the donation should not be treated as an expense of the TPC Group in calculating the 2017 service fee.

86 Castleway took objection to certain other expenses which Castleway contends are unrelated to the TPC Group's normal business activities, including:

3. and advisory services associated with planning and implementing Nancy's asset management plan; and

2. services for Mrs Rado and members of her family;

3. planning and implementing Mrs Rado's asset realisation plan; and

4. relating to the commencement and conduct of this proceeding;

(iii) Costs incurred for the Rado memorial reserve at Tynong Park;

(iv) Costs incurred in connection with a dispute with a minority shareholder in SR Consolidated Pty Ltd being the estate of Lena Rado;

(v) Costs incurred by SR Consolidated in the 2014/2015 financial year which fail to reflect that the TPC Group's shareholding in that company was 74.8 per cent up to and including 28 June 2015, but increased to 98 per cent on 29 June 2015; and

(vi) Mr Lee's director's fees, which increased from $140,000 per annum as at 1 July 2014 to $255,000 per annum as at 1 July 2016.

87 As mentioned above, the categorisation of these expenses as so listed, and that they are not normal business expenses, is disputed. If the parties are unable to reach agreement, I consider that an accountant may need to apply the above finding on the proper construction of the PDSA and assess the objections referred to and then calculate the appropriate TPC Group Profit. These objections are limited to the financial years 2014, 2015 and 2016.

88 In 2014, Nancy informed Mr Keeghan that she wished to realise the assets of the TPC Group to distribute the proceeds to her children before she died. To that end, Mr Keeghan was instructed to undertake the realisation of the TPC Group's assets.

89 Castleway contends that it was an implied term of the PDSA that the projects being undertaken by the TPC Group should be completed in such a way as to achieve their optimum profitable development outcome. The projects were, in the main, property developments. Castleway contends that to sell projects before the property was fully developed was not consistent with completing them to achieve their optimum profitable development outcome.

90 This argument is particularly relevant in relation to the property at Kawana Waters, discussed further below, which Mr Keeghan states could realise profits of $90 million.

91 I do not accept Castleway's implied term. The PDSA expressly provided that the TPC Group was not bound to follow or accept any advice or recommendation by Castleway. The agreement provided that the management, policies and operations of each TPC Entity should be the sole responsibility of that TPC Entity. It is well within the terms of the PDSA for Nancy to wind up the business.

92 In my view, an independent accountant might conclude that accounting, legal and director's fees relating to the realisation of the Group's assets, were incurred in the normal course of business of the TPC Group. This is particularly so as Castleway claims to be owed a substantial service fee, primarily calculated by reference to the profit realised by the asset realisation plan.

93 The parties are in dispute as to the circumstances in which Castleway is to receive any moneys from projects that will be completed or concluded after the PDSA was terminated. This ground of dispute relates to the third method of payment available to Castleway.

94 After the agreement is terminated, the PDSA provides that in certain circumstances commission is payable to Castleway on certain projects when they are completed after the termination of the agreement. Such projects are those defined (or categorised) as Introduced Projects.

95 Castleway claims there are 16 such projects, listed in the table below. There is a dispute over the meaning of 'Introduced Projects' and whether the 16 projects referred to by Castleway are Introduced Projects within the meaning of the PDSA. The plaintiffs contend that none of the ventures referred to by Castleway are Introduced Projects as defined and dispute Castleway's interpretation of Introduced Projects.

96 The relevant clause of the PDSA is clause 4.5 which provides as follows:

If this Agreement is terminated by either party, then the parties agree that following termination:

(a) the TPC Group will pay to the Manager a commission for any Introduced Projects completed after the date of termination of the Agreement (Commission);

(b) the Commission will be calculated in accordance with the principles in Schedule 2 for each Introduced Project completed in any Financial Year, and without limiting Schedule 2 the parties agree that the table in Item 1 of Schedule 2 shall apply to the aggregate TPC Group Profit (or TPC Group Loss) for Introduced Projects settled in the relevant Financial Year;

(c) the TPC Group will pay the Commission to the Manager on or before the date which is 30 days following the later of settlement of the Introduced Project or the calculation of all accounting costs for the Introduced Project by the TPC Group; and

(d) the Manager acknowledges that any payment under clause 4.5(c) shall be an advance payment of Commission in the period between payment of the amount and determination of the final Commission payable for the relevant Financial Year. The Manager shall refund on demand any overpayment of Commission paid to the Manager in any Financial Year following any final calculation of the Commission payable for that Financial Year.

97 The definitions and interpretations section of the agreement provides:

In this Agreement, unless the contrary intention appears or the context otherwise requires:

...

Introduced Project means a project that the TPC Group was made aware of by the Manager or the Executive Director (as the case may be) before the termination of this Agreement for the purposes of acquisition, development or management

98 It is also relevant to have regard to clause 2 of the PDSA:

2. Engagement

2.1 The TPC Group appoints the Manager to provide property development services to the TPC Group during the Term.

2.2 The Manager must, from time to time during the Term and to the extent reasonably requested by the TPC Group, provide the Services (as listed in clause 2.5 below) to the TPC Group.

2.3 The Manager accepts the engagement and agrees to make itself available from time to time to consult with the TPC Group in connection with the Services and to procure the active and continued involvement of the Executive Director in the provision of the Services.

2.4 The Manager may, at its own cost, arrange for, hire and coordinate the services of other professionals including experts and consultants in addition to the services of its own personnel, if required to perform the Services.

2.5 The Manager agrees to use its reasonable endeavours to provide the following services to the TPC Group:

(a) identify and investigate and, where appropriate, prepare a business case for property development opportunities for:

(i) land held by any TPC Entity at the date of this Agreement;

(ii) land to be acquired by any TPC Entity after the date of this Agreement; and

(iii) land held by third parties to be made available (by any means) to the TPC Group for development;

(b) assist the TPC Group in the planning, structuring and negotiation of any:

(i) potential acquisition of any land or land holding entities;

(ii) property development; or

(iii) disposal of any asset held by any TPC Entity;

(c) assist the TPC Group to identify, assess and secure financing sources, and co-developers, partners or joint venturers in connection with any property acquisition or development conducted by any TPC Entity; and

(d) manage existing properties owned by the TPC Group to a profitable development outcome.

2.6 The Manager shall be responsible for supplying all necessary plant, equipment and tools of trade required by it to perform the Services.

2.7 The TPC Group agrees to provide to the Manager all information necessary to enable the Manager to fully perform the Services in accordance with this Agreement.

2.8 The Manager must fully and fairly disclose to the TPC Group, in such detail as the TPC Group may reasonably require, details of all property acquisition or development opportunities that arise during the Term.

2.9 Subject to clause 2.10, the Manager must not, and must procure that the Executive Director does not, undertake any property development during the Term, in any capacity other than in accordance with this Agreement unless:

(a) the opportunity to conduct the property development has first been disclosed to the TPC Group in accordance with clause 2.8; and

(b) the TPC Group gives written notice to the Manager within 60 days of the opportunity being disclosed to it electing not to undertake the property development. For the avoidance of doubt, if the TPC Group does not provide written notice to the Manager within this period, then the TPC Group is deemed to have rejected the opportunity to undertake the property development.

2.10 Nothing in this agreement restricts the Executive Director or Manager, in his personal capacity, entering into a joint venture with a third party to undertake property development or undertaking any property development opportunity rejected by the TPC Group in accordance with clause 2.9.

99 The plaintiffs contend that on its proper construction of the PDSA, and in particular clause 4.5, an Introduced Project is limited to a project:

(a) entailing the acquisition, development or management of real estate;

(b) which had not been a project of the TPC Group prior to the commencement date of the PDSA;

(c) of which the TPC Group was made aware by either of the defendants introducing the project to the TPC Group for acquisition, management or development;

(d) which is not taken up during the term of the PDSA, and therefore not otherwise accounted for by the termination adjustment;

(e) which is taken up and completed following termination of the PDSA by either party in accordance with clause 4.4 or 4.6.

The TPC Group may terminate this Agreement immediately by notice in writing if any one or more of the following events occur:

(a) the Manager and the Executive Director (or either of them) are in breach of any term of this Agreement and such breach is not remedied within ninety (90) days of it receiving notification of the breach from the TPC Group;

(b) the Services provided by the Manager are, in the reasonable opinion of the TPC Group, unsatisfactory and the Manager does not rectify or resupply the Services to a reasonable standard acceptable to the TPC Group within ninety (90) days of receiving notification from the TPC Group; or

(c) the Manager and the Executive Director (or either of them) is subject to an Insolvency Event, unless the Manager has given a Guarantee to secure finance for the TPC Group, and this event has arisen because of that Guarantee.

The Manager may terminate this Agreement by giving six (6) months written notice to the TPC Group.

100 The disputed 'projects' are listed in exhibits to Mr Keeghan's witness statement dated 19 December 2016 in a letter from Kyriacou Lawyers dated 24 October 2014,[28] and in a letter from Mr Keeghan to Nancy dated 22 June 2015.[29]

Introduced to the TPC Group (Tynong Pastoral Co by PIPQ

Listed in PDSA - existing as at 1 July 2007. Introduced to the TPC Group (Tynong Pastoral Co) by PIPQ

3 developed lots sold, still to be settled; 2 lots to be developed

Listed in PDSA - existing as at 1 July 2007. Introduced to the TPC Group (Tynong Pastoral Co) by PIPQ

Awaiting development approval for industrial subdivision

52 of 57 stage 1 lots have settled, 71 stage 2 lots sold, awaiting settlement

Not relating to property development/management/ acquisition

Introduced after PDSA; accounted for in the termination adjustment

Valla, Oyster Creek / Pacific Hwy, Valla (Oyster Creek, Timbertop Est, Pearl)

40-72 Rokey Street, Collingwood and 31-33 Rupert Street Collingwood

Introduced after PDSA; accounted for in the termination adjustment

Not relating to property development/management/ acquisition

Barkers Road, Garfield / Lot 16 Barkers Road, Garfield

Land at Brew Road, excluding Gumbaya Park / 125 Brew Road, Tynong North "Stillwaters"

101 The defendants say that the plaintiffs contend that one of the 'projects' was not an Introduced Project as it involved a joint venture. This was a reference to the IBIS aged care 'project', number 14 on the above table. The plaintiffs say that they did contend that it was not an Introduced Project but did not rely on the grounds that it was a joint venture, but rather on the ground that it relates to a business and not real estate.

102 The plaintiffs did object to the option to acquire a quarry, number 7, being treated as an Introduced Project. The plaintiffs contend that an option to acquire a quarry is not a 'project' 'taken up' and does not relate to development, management or acquisition of property.

103 The plaintiffs contend that Introduced Projects do not include projects that the TPC Group was made aware of before the PDSA commenced, or if made aware of during the PDSA, it was taken up before the agreement was terminated, for the reason that such projects would be taken into account in the calculation of the termination adjustment.

104 The defendants accept that an Introduced Project cannot be one which was realised or completed during the life of the PDSA.

105 As to the first point, the plaintiffs contend that the definition requires that the TPC Group be made aware of the project by Castleway as manager, or Mr Keeghan as the executive director. The plaintiffs say that the positions of manager or executive director did not exist before the PDSA and ESA commenced, thus projects could not have been introduced by them before they existed.

106 In support of their contention, the plaintiffs point to the list of existing projects included in the PDSA, which includes a number of projects that Castleway claims to be owed a commission. The plaintiffs say that if it was the intention of the parties for these projects to also fall under the definition of 'Introduced Projects' then that is what the agreement would have said. In my opinion this argument does not add anything to the construction of the clause, as it would have been equally easy for the parties to exclude any projects listed as existing projects from the definition of 'Introduced Projects', if that was the intention.

107 I have found the agreement was a profit sharing agreement. Construing the relevant clauses with this purpose in mind, on its proper construction, the PDSA encompasses the payment of commission on projects introduced by Castleway or Mr Keeghan at any time prior to the termination of the PDSA - that is, it would apply to projects introduced prior to the commencement of the PDSA. The definition of 'Introduced Project' includes a project that the TPC Group was made aware of by Mr Keeghan before the termination of the PDSA. This is the only temporal limit placed on the definition.

108 To allow for payment of commission on projects introduced prior to the commencement of the PDSA, which Castleway managed, and from which a profit was derived for the TPC Group, accords with the commercial purpose of the PDSA and what the normal meaning of the words used would convey to reasonable businesspersons.

109 As to whether the term can apply to projects 'taken up' during the term of the PDSA, I do not agree that the definition of 'Introduced Project' does not include projects taken up during the currency of the PDSA. That is not what the plain meaning of the words convey. The plaintiffs say that the plain meaning of the words should be ignored as a matter of efficacy as the defendants would be doubly compensated for any increase in the value of the project if taken up during the currency of the PDSA, by way of commission under clause 4.5 as an Introduced Project, and under the termination adjustment.

110 That is, under the termination adjustment, the defendant receives a share of the increased value of a project valued at the date of termination. The plaintiffs submit that under the Introduced Project provision, the defendants would again receive that increased value if it was maintained when the project was completed.

111 The defendants agree that Castleway should not receive compensation twice for any such projects, but say that a simple calculation can be made to avoid double counting, whereby any adjustment made at termination can be taken into account in calculating the commission to be paid at a future date if a profit were to be derived.

112 In my opinion, it is implicit in the PDSA that the defendants were not to be compensated twice for the same share of profit. Any calculation of the profit to be accounted to Castleway at the end of a development of an Introduced Project would naturally take into account any payments that Castleway has already received in relation to that project.

113 In view of the fact that the agreement is a profit sharing agreement, any double counting would be ignored in calculating the applicable profit to be shared.

114 The plaintiffs contend that an Introduced Project must be one that is introduced by Castleway or Mr Keeghan. Castleway disputes this construction and says that it is sufficient that Castleway or Mr Keeghan made the TPC Group 'aware' of an Introduced Project.

115 Reading the relevant clauses together with the other clauses of the PDSA, in particular clauses 2.5(a), 2.8 and 2.9 which concern Castleway's obligations to disclose to the TPC Group property acquisition or development opportunities that arise during the term of the PDSA, the plaintiffs say it is clear that to make the TPC Group aware of an Introduced Project means to bring a property acquisition or development opportunity to the TPC Group's attention; indeed, to 'introduce' it. The plaintiffs submit that this is precisely the task that Castleway, and through it, Mr Keeghan, is required to do under clause 2.8 of the PDSA, and it would be nonsensical to say that Castleway should be remunerated by way of a Commission in respect of some opportunity of which the TPC Group was 'made aware' by a third party. Such a construction would be inconsistent with the objective intention of clause 4.5.

116 I accept the plaintiffs' contention that it is relevant to have regard to the Manager's obligations under clause 2 of the PDSA, in particular the obligation on the Manager to use its reasonable endeavours to identify and investigate and where appropriate prepare a business case for property development opportunities. Under clause 2.8, the Manager was to fully and fairly disclose to the TPC Group, in such detail as the TPC Group may reasonably require, details of all property acquisitions or development opportunities that arise during the term of the PDSA.

117 The first step to be taken in ascertaining whether a project is an Introduced Project is to identify 'the project' that is sought to be characterised as an Introduced Project. For the issue of commission for an Introduced Project to be raised, the project would have to be one in existence when the PDSA was terminated, or one that came into existence after the termination of the PDSA. In each case, the question is whether the TPC Group was made 'aware' of that project by Mr Keeghan before the PDSA was terminated.

118 In my opinion, for the TPC Group to be made 'aware' of the project within the meaning of the definition of Introduced Project, Castleway (through Mr Keeghan) would need to make the TPC Group aware of 'development opportunities of the project' (clause 2.5(a)) in relation to land; and the means by which the TPC Group might undertake the development opportunities. Such information would be consistent with Castleway's obligations under clause 2 and also allow the TPC Group to exercise its rights and powers under clause 5.1, which states:

The TPC Group is not bound to follow or accept any advice or recommendation by the Manager. The management, policies and operations of each TPC Entity shall be the sole responsibility of that TPC Entity.

119 The definition of an Introduced Project assumes that the relevant TPC Group was not otherwise aware of the project before Mr Keeghan made the TPC Entity aware of the project.

120 The parties were at issue as to whether it was necessary for the TPC Group to own the land directly, or whether the interest in the land could be acquired through a unit trust or some other vehicle. Under clause 2.5, the Manager's obligations extended to land held by third parties to be made available (by any means) to the TPC Group for development. In my opinion, an Introduced Project extends to such land.

121 The plaintiffs contend that the Tynong Quarry Option and the IBIS Care investment do not involve any land development and are therefore not Introduced Projects.

122 The Tynong Quarry Option is an option, granted on 7 July 1994, by Astec Pty Ltd to Adaz Nominees to purchase the site of the quarry at Tynong.[30] Astec Pty Ltd sold the land subject to the quarry in 2002 to Fulton Hogan, who bought the Standard Roads business and certain pieces of land.

123 As indicated above, the plaintiffs contend that an Introduced Project is limited to a project that satisfies five criteria. Relevantly to the option, the plaintiffs contend that the option is not a project entailing the acquisition, development or management of real estate. In particular, the plaintiffs contend that the option is not a parcel of real estate.[31]

124 Castleway's obligations under the PDSA include those set out in clause 2.5 (see above paragraph 98). In my opinion, an Introduced Project includes any project that falls within the activities referred to in clause 2.5. Thus, for example, an Introduced Project could relate to a project of land to be acquired by any TPC Group Entity after the date of the PDSA. Thus, in my opinion, it is not necessary for the land the subject of a project to be owned by any TPC Group Entity. On the contrary, one of the main tasks of Castleway was to introduce potential acquisitions for development.

125 I find that the acquisition of the option to purchase the quarry could be a project that satisfied the definition of an Introduced Project. I therefore reject the plaintiffs' contention that the option is not an Introduced Project, as the option is not a parcel of real estate.

126 The IBIS Care Retirement Home is said to be a joint venture with ANZ Care to provide aged care services. The defendants concede that the investment by the TPC Group was in the business of providing services. The investment was sold and settled on 28 July 2017 after the term of the PDSA. It is therefore relevant to Castleway's entitlement to commission.

127 In my opinion, an investment in a business providing aged care services does not constitute a project that could fall within the meaning of an Introduced Project. I agree that the business would have to have some property element to fall within a possible project. I therefore find that the introduction of the investment in the aged care business through the joint venture with ANZ Care is not an Introduced Project under the PDSA.

128 The parties are at issue about the categorisation of the Kawana Waters project as an Introduced Project.

129 Mr Keeghan's evidence about the issue is as follows. In or about February 2007, Partners in Property Queensland Pty Ltd (PIPQ) (formerly Gemkiss Pty Ltd) brought to his attention a development opportunity at Lot 29, Innovation Parkway, Kawana Waters (Kawana Waters) for the TPC Group.

130 PIPQ is run by Mr Harmer. He is PIPQ's sole director and company secretary. Mr Harmer worked as a real estate agent when Mr Keeghan met him in around 2004. He sold various Queensland properties on behalf of various companies of which Mr Keeghan was a director.

131 Mr Keeghan was a director of Gemkiss Pty Ltd from 18 March 2003 to 10 August 2006, although it was a dormant entity which conducted no activities. Mr Harmer became the director and company secretary of Gemkiss Pty Ltd at Mr Keeghan's instigation.

132 PIPQ would refer to Mr Keeghan, on behalf of the TPC Group, opportunities for land acquisition and development in Queensland. It was through this business relationship that Mr Harmer brought to Mr Keeghan's attention the potential development at Kawana Waters. Mr Keeghan says that Mr Harmer said to him, in around early 2007, that this piece of land had become available and that he considered the TPC Group might be interested in it.

133 At Mr Keeghan's instigation, the TPC Group acquired Kawana Waters in around May 2007, shortly before the PDSA commenced, for approximately $3.5 million, with a view to constructing a residential and commercial development. The site was zoned for a commercial development and approximately 130 dwelling units, of up to six levels. The project was delayed by the global financial crisis.

134 Mr Keeghan says that he was made aware of the project by Mr Harmer. The evidence is unclear, as to whether Mr Keeghan then made the board aware of the project, in the sense discussed above. If he did, then the Kawana Waters project would have been an Introduced Project. I do not consider that it matters that Mr Harmer would have approached Mr Keeghan rather than Mr Keeghan approaching Mr Harmer so long as it was Mr Keeghan that made the relevant TPC Entity aware of the project.

135 Mr Lee also gave evidence about Kawana Waters, stating that Tynong Pastoral engaged PIPQ to source property developments and oversee developments by an agreement commencing on 1 July 2006 (PIPQ Agreement). Mr Harmer has also been an alternate director of Tynong Pastoral since 28 July 2009.

136 Pursuant to clause 4.1 of the PIPQ Agreement, PIPQ must refer to Tynong Pastoral any opportunity that comes to its attention so Tynong Pastoral has the opportunity to elect whether or not it wishes to pursue the opportunity. Clause 4.2 of the PIPQ Agreement forbids PIPQ to refer an opportunity to any other party unless it has first referred it to Tynong Pastoral.

137 Tynong Pastoral purchased Kawana Waters on 26 February 2007 for $3.5 million (exclusive of GST). Clause 9.1 of the PIPQ Agreement acknowledges that Tynong Pastoral, or related entities, were presently carrying out the listed Existing Projects introduced as Opportunities by PIPQ to Tynong Pastoral or through the efforts of PIPQ; Kawana Waters is listed at subparagraph (e). Under the agreement, PIPQ was to receive a consultancy fee of $25,000 per month and to share in the profits of projects introduced to Tynong Pastoral and managed or marketed.

138 The agreement acknowledges that Kawana Waters was introduced by PIPQ to Tynong Pastoral and that fees were payable to PIPQ in respect of the development of Kawana Waters. Mr Keeghan signed the agreement as a director of Tynong Pastoral.

139 Neither Mr Keeghan nor Mr Lee were challenged on their evidence outlined above.

140 The PDSA lists Kawana Waters as a TPC Group Existing Project as at 1 July 2007. The agreement itself does not explain the purpose or effect of the project being listed in the PDSA.

141 Mr Keeghan bears the evidentiary onus of establishing that Kawana Waters is an Introduced Project. I am not satisfied that Mr Keeghan made the TPC Group aware of the Kawana Waters project. The documentary evidence referred to above suggests that the TPC Group was made aware of the Kawana Waters project under the terms of the PIPQ agreement. I am prepared to assume that Mr Keeghan negotiated the PIPQ agreement, and as a matter of fact established the relationship between Mr Harmer and the TPC Group. I accept that Mr Harmer brought to Mr Keeghan's attention the Kawana Waters property as a potential development site, pursuant to the PIPQ agreement, and Mr Keeghan then caused the TPC Group to acquire the Kawana property.

142 Nevertheless, I am not satisfied that Mr Keeghan has established that Kawana Waters is an Introduced Project. Rather, the evidence suggests that the project was introduced directly to the TPC Group under the PIPQ agreement.

143 In relation to Kawana Waters, the defendants also claim to be entitled to damages representing the difference between the realised profit (used to calculate commission if commission is payable on Kawana Waters) and the optimum profitable outcome of the project.

144 This claim is made on the basis of the assertion that it was a breach of the PDSA for Nancy to give a direction to wind up the business prior to the project achieving its optimum profitable outcome. As discussed above, Castleway contends that it was an implied term of the PDSA that the projects being undertaken by the TPC Group should be completed in such a way to achieve their optimum profitable development outcome. Castleway contends that to sell projects before the property was fully subdivided was not consistent with completing them to achieve their optimum profitable development outcome.

145 Mr Keeghan states that the TPC Group could realise profits of $90 million on Kawana Waters if it was developed to its maximum profitable development, conceding that input of around $70 million would be required.

146 As I have found, I do not accept Castleway's implied term. There is no basis for implying such a term. The PDSA expressly provided that the TPC Group was not bound to follow or accept any advice or recommendation by Castleway. Clause 2.5(b)(iii) expressly contemplates that one of the services which the TPC Group may request of Castleway is in 'the planning, structuring and negotiation of any ... disposal of any asset held by any TPC Entity.' The agreement provided that the management, policies and operations of each TPC Entity should be the sole responsibility of that TPC Entity. It is well within the terms of the PDSA for Nancy to wind up the business.

147 I find that Castleway's entitlements to any commission payable in respect of an introduced project, after termination of the PDSA, does not carry with it an obligation on the TPC Group to achieve the optimum profitable outcome in respect of these projects.

148 Further, it is commercially untenable that the TPC Group may have to raise capital and place its affairs at risk to achieve the optimum profitable development, despite the risks involved. This is particularly so after the termination of the PDSA and the loss of the skills of Mr Keeghan to manage the project.

149 Castleway was an independent contractor to the TPC Group. Castleway had no capital at risk. It was entitled to a significant share of the profits. The downside, if any, was that the projects undertaken were at the decision of the TPC Group.

150 The defendants dispute the inclusion in the calculation of the service fee for the 2015 financial year, costs incurred by SR Consolidated that fail to reflect that the TPC Group's shareholding in SR Consolidated was 74.8 per cent up to and including 28 June 2015, but increased to 98 per cent on 29 June 2015.

151 When calculating the TPC Group Profit, SR Consolidated's expenses were calculated as though the TPC Group's shareholding was 98 per cent for the entire financial year, as the figure used was the shareholding figure as at 30 June 2015.

152 The defendants say that this is not a correct application of the PDSA's terms and that the PDSA requires the apportionment of SR Consolidated's expenses with reference to its shareholding when those expenses were incurred.

153 The plaintiffs say that the initial calculation showed a shareholding of 74.8 per cent for the entire year, by way of concession to Castleway. However, at Mr Keeghan's request,[32] the calculation was changed to show a shareholding of 98 per cent, being the shareholding at 30 June 2015, specifically requiring that the strict terms of the PDSA be applied, which the plaintiffs say do not allow for any pro-rating of the TPC Group's share of income or losses from any particular entity where it may have changed during the year.[33] Grant Thornton carried out their calculation of TPC Group Profit in accordance with Mr Keeghan's request that it reflect the TPC Group's share of SR Consolidated's losses as at 30 June 2015, being approximately 98 per cent.[34]

154 Mr Keeghan says he requested this calculation as he was under the mistaken belief that it would increase the service fee payable to Castleway.[35] It has since become apparent that a pro-rating would be beneficial to Castleway, and the defendants have argued that such a process should be undertaken in calculating the 2015 financial year service fee.

155 The plaintiffs say that this contention should be rejected as not reflected in the process of calculation set out in Schedule 2 of the PDSA; Note 3 of Schedule 2 provides that TPC Group Profit includes 'the TPC Group's proportionate share of profit attributable to any entity ... for which the TPC Group does not hold a 100% ownership interest.' The plaintiffs say that there is no provision for pro-rating, and profit or loss incurred in any particular year by a particular entity is not apportioned at any stage between its shareholders: it is simply a figure as at 30 June.

156 The defendants say that Note 3 of Schedule 2 can only be complied with if the profit attributable to such an entity reflects the extent of the TPC Group's ownership interest in it from time to time.

157 Further, the defendants point to Item 2 of Schedule 2, which provides that the TPC Group Profit is prepared on a 'consolidated basis', which they submit requires that the nominated accountant take into account the period to which the expenses relate.

158 In my opinion, Note 3 requires the TPC Group Profit to include only the TPC Group's proportionate share of profit attributable to any entity; when consolidating group accounts of a parent and a partially owned subsidiary, the proportionate share of the subsidiary includes pro-rating where normal accounting practice would recognise the change in ownership in consolidating the accounts of the subsidiary with the parent.

159 The plaintiffs also contend that Mr Keeghan asked that the group accounts be prepared ignoring the change in share ownership of the subsidiary during the financial year and he should now be held to that. Mr Keeghan says that he misunderstood the consequences of what he requested. Without more, I find that Mr Keeghan and Castleway are entitled to the consolidation for the relevant financial year being carried out in accordance with standard accounting practice.

160 Unfortunately for Castleway, the PDSA expressly provides that the service fee is payable once the notice of objection has been resolved and an invoice for the settled sum is issued. No provision is made for issuing an invoice for the undisputed sum whilst the notice of dispute is resolved.

161 On the TPC Group's own calculations the defendants are entitled to service fees of about $14.6 million. The TPC Group contends, however, that it is not obliged to pay the undisputed amount until the disputed items are resolved. The argument is based on the TPC Group's construction of clause 3 of the PDSA.

162 The service fees for 2008 and 2009 were calculated prior to entry into the PDSA and were paid within 45 days of 10 December 2010.[36] There was no service fee for 2010 as there was a loss within the TPC Group.[37]

163 The service fee for 2011 was reported on 29 April 2012, invoiced by Castleway on 1 May 2012 and paid on 8 June 2012.[38] The service fee for 2012 was reported on 31 May 2013, invoiced on 20 June 2013 and paid on 24 June 2013.[39] On 4 July 2017 Castleway issued a supplementary invoice for a further amount in respect of each of 2011 and 2012.[40]

164 On 6 October 2014, Castleway raised disputes concerning the calculation of the service fees for 2011, 2012, 2013 and 2014. No dispute notice was issued by Castleway for 2011 and 2012, in accordance with clause 3.3, prior to this date. The plaintiffs contend that therefore the invoiced amounts for 2011 and 2012 were 'deemed to be agreed by the parties.'[41]

165 On 23 October 2015, the nominated accountant sent to Castleway their report of the adjusted income to determine the 2013 service fee.[42] Castleway reiterated the disputes raised in the email of 6 October 2014.[43]

166 On 26 October 2015, Castleway served a further dispute notice concerning the definition/construction of an Introduced Project under the PDSA.[44] Again on 9 November 2015, Castleway re-served the dispute notice of 6 October 2014.[45]

167 On 18 December 2015, Castleway served a tax invoice with the description 'FY2013 Amended Service Fee calculation as prepared by Grant Thornton 19 October 2015.'[46] This invoice was paid on 18 January 2016.[47] The minutes of meeting of the TPC Group board of 9 February 2016, under the heading '2013 PDSA', record Mr Keeghan 'confirmed that this amount has been previously agreed and has now also been paid in full.'[48] The plaintiffs submit that an accord and satisfaction operates to prevent the 2013 service fee from now being reopened.

168 On 3 April 2017, Castleway sent invoices for 2014[49] and 2015.[50] A further invoice was sent on 4 July 2017, for 2016.[51] Supplementary invoices were sent for each of 2014,[52] 2015[53] and 2016[54] on 4 July 2017.

169 On 3 April 2017, Kyriacou Lawyers sent a letter to Maddocks enclosing invoices for 'payment of the uncontested amounts of the service fees' for the 2014 and 2015 financial years. The letter states that the invoices are sent because 'in light of Mr Lee's witness statement it appears that, on any view, [TPC Group] do not dispute that a substantial amount in service fees is presently due and payable to Castleway, and are not contested pursuant to the disputes the subject of the proceeding.'[55]

170 On 10 April 2017, Maddocks sent a reply to this letter which stated:[56]

We note that the requirement for the TPC Group to pay a non-disputed component of an invoice under clause 3.3(f) appears to relate only to a later stage in the process, that is, where the calculation of the service fee has been completed and all disputes resolved, but an invoice in an amount different to the amount of the finalised service fee calculation is rendered by your client. Plainly that is not the present situation.

Accordingly, our clients do not accept that the invoices are validly issued, or that the amounts represented in them are presently owing to your client.

171 Maddocks refer to the agreement that provides that where there is a dispute over the service fee, the service fee shall be paid within 14 days after the dispute is resolved in accordance with clause 9:[57]

Notwithstanding that the parties have agreed to submit all disputes to the Court, and not to follow the dispute resolution process set out in clause 9 of the PDSA, the mechanism if clause 3.3 does not contemplate the issuing of invoices by your client whilst a dispute over the calculation of the service fee remains unresolved.

172 The defendants submitted that the failure to pay the undisputed sums was not consistent with the terms of the PDSA and that it was a deliberate delay on the part of the plaintiffs and there had been continued delay in making payments. It was put to Mr Lee that there had been delay in calculating the service fees since the 2013 service fees, and that the 2014 service fee should have been calculated finally by March or April 2015, however this was not calculated until 2016.

173 Mr Lee said that the delays in reporting the service fees were largely due to Mr Keeghan. The meeting minutes of the TPC Group board meeting of 11 August 2015 note that 'GDK outlined that RSM Bird Cameron and Deloitte had been continuing discussions in relation to the treatment of trading stock and he was hopeful of receiving the final position next Monday. It appears that RSM have now convinced Deloitte that the cost in question are tax deductible. Once the final position is received, GDK will forward it to [Mr Skinner] and Grant Thornton so that the 2013 and 2014 positions can be finalised, including the PDSA calculations.'[58] The 13 October 2015 minutes note that a further update is being provided by Mr Keeghan in relation to the 2013 and 2014 calculations.[59]

174 On 26 November 2015, Mr Taylor reported the service fee calculation to Mr Keeghan.[60] By email of 13 April 2016, Mr Lee pressured Ged to complete the service fee calculation for 2014.[61] There is a further sequence of emails over the following weeks up to 28 April 2016, at which point Mr Skinner reported the service fee as he would have calculated it.[62] Mr Skinner and Mr Keeghan agreed to disagree about the calculation of the 2014 service fee figure.[63]

175 In November 2014, at Nancy's suggestion, the parties engaged in a mediation, with Mr Finkelstein QC as mediator, attempting to address the disputes between the parties in relation to the matters which had been raised. The mediation failed, and in July 2015, Nancy proposed that a QC adjudicate on the disputes that had been raised to date. This proposal was rejected by Mr Keeghan.[64]

176 On 1 March 2016, the parties agreed that the dispute notice procedure of clause 9 of the PDSA would no longer apply so that all disputes could be tried in this litigation.[65] The plaintiffs say that the effect of this was to remove the words 'in accordance with clause 9' in subclauses 3.3(c), (d) and (f). The defendants say that the effect of the agreement was to mark out all references to the PDSA's dispute resolution procedure in clause 3.3 and that, accordingly, there was no requirement, or ability, for either party to provide a dispute notice under clause 3.3(c) of the PDSA. The defendants say that, similarly, there is no reasonable basis for replacing the words in clause 3.3(c) 'either party has ten (10) days to give to the other party a dispute notice in accordance with clause 9' with the words 'the dispute shall be litigated in the Court.'

177 The defendants say that this is so because to replace references to clause 9, with references to the present litigation, would have the effect of replacing the PDSA's rapid timetable for resolving disputes; creating what the defendants say, would be an uncommercial situation whereby comparatively minor disputes regarding components of the service fee would delay the TPC Group's obligation to pay undisputed components. Further, the defendants say that the PDSA acknowledges the absurdity of this arrangement, with clause 3.3(f)(i) requiring the TPC Group to pay the 'non-disputed component' of any invoice in accordance with clause 3.3(e). The defendants say that any incompatibility between the operation of clauses 3.3(c) in its original form and 3.3(f) is no longer relevant because the clause 9 dispute resolution procedure no longer applies.

178 The defendants submit that, on the proper construction of clause 3.3, Castleway is entitled to submit invoices for the service fee before disputes regarding the service fee calculation are resolved.

179 The plaintiffs contend that, in accordance with the process set out under clause 3.3 (specifically, clause 3.3(d)), if a dispute exists between the parties following the reporting of the service fee by the nominated accountant, that dispute must be resolved before Castleway's entitlement to issue an invoice is enlivened. The machinery of clause 3.3 is not altered by the fact that the parties agreed to submit their disputes to the Court, rather than to expert determination under clause 9. The plaintiffs say that the invoices issued by Castleway and numbered 1701, 1701A, 1702, 1702A, 1703, and 1703A were therefore not validly issued as a dispute remains between the parties as to the calculation of the 2014, 2015 and 2016 service fees as no concept of an 'undisputed' component arises on clause 3.3 of the PDSA at this point in time.

180 Maddocks further contended that the requirement for the TPC Group to pay a non-disputed component of an invoice under clause 3.3(f) appears to relate only to a later stage in the process; where the calculation of the service fee has been completed, and all disputes resolved, but an invoice in an amount different to the amount of the finalised service fee calculation is rendered by Castleway.

181 The TPC Group is liable to pay Castleway $14,671,979.30 (inclusive of GST), which is comprised of the following amounts, plus interest:

(a) $1,196,956.20 (inclusive of GST) for the 2013/14 financial year;

(b) $4,593,037.90 (inclusive of GST) for the 2014/15 financial year; and

(c) $8,881,985.20 (inclusive of GST) for the 2015/16 financial year.[66]

The Service Fee shall be paid annually in arrears on the following basis:

(a) the TPC Group shall use reasonable endeavours to procure that financial statements and tax returns for each TPC Entity for a Financial Year are finalised on or before 31 December in the Financial Year following the year to which they relate, and shall procure in any event that such financial statements and tax returns are finalised by no later than 31 March in the Financial Year following the year to which they relate;

(b) the TPC Group shall procure that the nominated accountant acting for the TPC Group calculates the TPC Group Profit in the manner set out in Schedule 2 and reports to the TPC Group and the Manager on the Service Fee payable in respect of a Financial Year within thirty (30) days of finalisation of the TPC Group tax returns for that Financial Year;

(c) after the Service Fee is reported to the TPC Group and the Manager, either party has ten (10) days to give to the other party a Dispute Notice in accordance with clause 9. If no Dispute Notice is given then the Service Fee is deemed to be agreed by the parties;

(d) the Manager shall submit a Tax Invoice to the TPC Representative for the Service Fee, within fourteen (14) days after the accountant provides the report containing details of the Service Fee payable or, if there is a Dispute over the Service Fee, within fourteen (14) days after the Dispute is resolved in accordance with clause 9. The invoice must be a compliant Tax Invoice, and the invoiced amount must equal the amount of Service Fee as set out in the report (including any GST payable). Any failure or delay in submitting a Tax Invoice shall not be construed as a waiver of the Manager's right to submit the Tax Invoice;

(e) subject to clause 3.3(g), the TPC Group will pay all correctly rendered invoices within thirty (30) days after receipt of the invoice.

(f) the TPC Group may dispute an invoice if the amount is not equal to the amount of Service Fee as set out in the applicable report from the accountant. If either party disputes an invoice:

(i) the TPC Group will pay the non-disputed component (if any) of the invoiced amount in accordance with clause 3.3(e); and

(ii) the TPC Group may withhold the disputed component until the dispute is resolved in accordance with clause 9, in part or in whole, in favour of the Manager and, subject to clause 3.3(g), shall pay any amount so resolved in favour of the Manager to the Manager within thirty (30) days of resolution of the dispute.

(g) if in the opinion of the TPC Representative the cash flow position of the TPC Group does not prudently allow for payment of the Service Fee within the time specified in clause 3.3(e) or clause 3.3(f)(ii) (as the case requires), the TPC Group shall request and the Manager shall agree to an extension of the date for payment of the Service Fee of up to one hundred and fifty (150) days.

9. Dispute Resolution

9.1 Disputes

If a dispute arises between any of the parties (Disputing Parties) in connection with this Agreement (Dispute), the relevant dispute resolution procedures in this clause 9 must be complied with prior to the initiation of any action or proceeding.

(a) A party wishing to resolve a Dispute must give notice in writing to the other Disputing Parties specifying reasonable details of the Dispute and requiring resolution of the Dispute by the parties under this clause 9 (Dispute Notice).

(b) The Dispute Notice must state that a Dispute has arisen and identify the matters in dispute.

(a) Within 15 Business Days after the date on which a Dispute Notice is received by a party, each Disputing Party must appoint a Director of that party to promptly meet and engage in good faith discussions with the objective of resolving the Dispute by agreement.

(b) If, and only after a period of 15 Business Days after the date on which a Dispute Notice is received, the Disputing Parties have not been able to resolve the Dispute, any Disputing Party may refer the Dispute for determination to the independent expert in accordance with the provisions of clauses 9.4 to 9.6 (inclusive).

(a) An independent expert will be appointed:

(i) by agreement between the Disputing Parties; or

(ii) in default of such appointment within 5 Business Days of the giving of the Dispute Notice, by the President for the time being of the Institute of Chartered Accountants in Australia (Victorian Division),

(Expert)

The Expert must:

(a) have reasonable qualifications and practical experience in the area of the Dispute;

(b) have no interest or duty which conflicts or may conflict with his or her function as an Expert, he or she being required to fully disclose any such interest or duty before his or her appointment;

(c) not be a director, employee or shareholder or otherwise interested in any party; and

(d) not be an advisor or consultant to any party in connection with the negotiation, interpretation or enforcement of this Agreement (without the prior consent of all parties).

(a) Any person appointed as an Expert under this clause 9 will be deemed to be and will act as an expert and not an arbitrator and the law relating to arbitration will not apply to the Expert's determination or the procedures by which the Expert may reach his or her determination. ·

(b) The determination will be held ln Melbourne unless the Disputing Parties otherwise agree.

(c) The parties will:

(i) give the Expert all information and assistance that the Expert may reasonably require; and

(ii) be entitled to be legally represented in respect of any representations that they may wish to make to the Expert, whether orally or in writing.

(d) The costs of the Expert and any advisers to the Expert will be borne by the Disputing Parties, in a manner determined by the Expert.

(e) The Disputing Parties acknowledge that the decision of the Expert will be final and binding on the Disputing Parties.

This clause 9 does not prejudice the rights of a party at any time to seek injunctive, declaratory or other interlocutory relief (including for specific performance) against the other parties in order to protect or preserve its rights under this Agreement.

184 Clause 3.3(b) provides for the nominated accountant to produce a report to the TPC Group and the Manager 'on the service fee payable.'

185 Clause 3.3(c) provides that after the service fee is reported, either party has 10 days to give the other party a dispute notice in accordance with clause 9.

186 Clause 3.3(d) provides for the issue of an invoice. It provides that Castleway shall submit a tax invoice within 14 days after the accountant provides the report (if there is no dispute). If there is a dispute over the service fee, the clause goes on to specify when the invoice may be issued, 14 days after the dispute is resolved in accordance with clause 9. Clause (d) provides that the invoice must be a compliant tax invoice and the invoice must equal the service fee as set out in the report. This can only apply where the resolution of the dispute does not alter the amount payable.

187 The first two lines of clause 3(f) provide for the TPC Group to dispute an invoice.

188 Line three and following lays down a procedure where either party disputes an invoice. Clause 3(d) appears to contemplate that no invoice may be issued until disputes are resolved, while clause 3(f) contemplates that invoices are issued which may be disputed. The clause contemplates that there will be a disputed and non-disputed component and the non-disputed component must be paid.

189 In my opinion, Castleway is not entitled to payment until the notices of dispute are resolved.

190 As the parties have agreed these are to be resolved in these proceedings, the appropriate course is for the nominated accountant to advise the Court on the correct application of the disputed expense in accordance with these reasons.

192 A declaration that none of the projects described as 'Introduced Projects' is an 'Introduced Project' within the meaning of the PDSA.

193 A declaration that, on the proper construction of the PDSA, Kawana Waters may be disposed of:

(a) without obtaining the consent of the defendants;

(b) notwithstanding any advice or recommendation to the contrary of the defendants.

194 A declaration that, on the proper construction of the PDSA, the service fee payable to Castleway is to be calculated by reference to a computation of the TPC Group Profit, which takes into account on a consolidated basis all expenses of the plaintiffs and their associated entities that are properly deductible for income tax purposes.

195 A declaration that, on the proper construction of the PDSA, in the calculation of the service fee any included capital gain or capital loss is measured by reference to its Notional Market Value as specified.

196 Such further or other declaration or order the Court deems appropriate and costs.

197 The defendants and plaintiffs by counterclaim claim:

198 A declaration that an Introduced Project within the meaning of the PDSA:

(a) refers to a project concerning real property, or any other asset, that the TPC Group was made aware of by the defendants, at any time before the termination of the PDSA for the purposes of acquisition, development or management;

(b) includes projects that the defendants made the TPC Group aware of, both before the commencement of the PDSA, or during the term of the PDSA, in respect of which Castleway provided services during the term of the PDSA, including:

(i) projects which were projects of the TPC Group prior to the commencement of the PDSA;

(ii) projects which became projects of the TPC Group during the term of the PDSA;

(c) includes a project which is to be completed following the termination of the PDSA, and which the defendants made the TPC Group aware of.

199 A Declaration that each project listed at paragraphs 12, 13 and 14 of the Statement of Claim is an Introduced Project within the meaning of the PDSA.

(a) the TPC Group is acting in breach of its obligations under the PDSA:

(i) to act reasonably and in good faith so as not to frustrate the Commercial Purpose;

(ii) not to frustrate or prevent the fulfilment of the Commercial Purpose; and/or

(iii) to do all such things as are reasonably necessary on its part to enable Castleway to have the benefit of the PDSA;

by giving a request/direction to the defendants to assist in achieving the realisation of an Introduced Project prior to that project achieving an optimum profitable development outcome, including in relation to the Kawana Waters Project;

(b) further, or alternatively, in such circumstances Castleway is entitled to recover damages being the amount of the service fee and/or commission it would have been entitled to receive upon that Introduced Project being managed to completion to achieve its optimum profitable development outcome, less the amount of any service fee paid.

201 Further, or alternatively, an order that the TPC Group specifically perform the PDSA so that Introduced Projects which have not been realised to date are managed to completion to achieve their optimum profitable development outcome.

202 Further, or alternatively, an injunction (both interlocutory and permanent) restraining the TPC Group, from realising assets held by the TPC Group, and/or withdraw from development agreements in which the TPC Group is a joint venturer, before those projects are managed to completion to achieve their optimum profitable development outcome.

203 Further, or alternatively, in relation to the Kawana Waters project, a Declaration that the TPC Group is estopped from resiling from, and/or has waived any entitlement to resile from, the common assumption that the Kawana Waters Project is to be managed to completion to achieve an optimum profitable development outcome.

(a) the TPC Group's expenses which may be taken into account for the purposes of calculating the service fee are the expenses of the TPC Entities in their normal business activities;

(b) the disputed expenses are expenses which are not properly deductible for the purposes of calculating the service fee.

205 A Declaration that, on a proper construction of the PDSA, when calculating the TPC Group Profit the adjusted taxable income as per the income tax returns for TPC Group Entities should include an allowance for carried forward capital losses and income losses which accrued before 1 July 2007 and which remain an asset of any applicable TPC Group Entity.

206 An Order the TPC Group specifically perform the PDSA by procuring that the nominated accountant acting for the TPC Group:

(a) calculates the TPC Group Profit in the manner set out in Schedule 2 to the PDSA;

(b) reports to the service fee payable in respect of the financial years in which disputed expenses have been included as expenses for the purposes of calculating the TPC Group Profit.

207 Damages representing the full amount of the service fee which remains outstanding and which the First Defendant is, or will be, entitled to be paid under the PDSA, including:

(b) any other expenses not incurred in the TPC Group's normal business activities; and

(c) $8,000,000, being the additional amount of the service fee for the financial year ending 30 June 2017 had Adaz Nominees not paid the donation.

208 Interest, costs, and such further or other declarations or orders that the Court deems appropriate.

209 The parties indicated that with the benefit of my findings they may be able to resolve some if not all of the issues between the parties. The defendants filed a list of issues and the plaintiffs responded to the list.[67] The findings set out above address these issues.

210 I have found that the service fee calculation requires adjustments to exclude expenses not incurred in the normal course of business. Accordingly, before final orders are made it will be necessary for the service fees for the years 2014, 2015 and 2016 to be recalculated.

211 If the parties are unable to agree on the recalculations, then the matter should be relisted before me. In those circumstances it may be appropriate for the Court to appoint the nominated accountant as a special referee under Order 50 of the Supreme Court Rules to decide the question of what accounting, legal and directorship expenses were incurred in the normal course of business by the TPC Group Entities for the disputed years 2014, 2015 and 2016 and report to the Court in writing stating with reasons the special referee's opinion.

212 I do not consider it appropriate to make any of the declarations sought or other orders sought until all issues are resolved.

213 I propose to adjourn the further hearing of these proceedings to a date to be fixed to resolve all outstanding issues.

[1] Exhibit D16; Exhibit D17; Exhibit D39; Exhibit D40.

[5] Transcript of hearing, Re Adaz Nominees Pty Ltd (1 September 2017) T658, L31, XXN.

[6] Transcript of hearing, Re Adaz Nominees Pty Ltd (5 September 2017) T792-793, L25-9 XXN.

[7] Transcript of hearing, Re Adaz Nominees Pty Ltd (1 September 2017) T645, XXN.

[8] (2015) 256 CLR 104 ('Mt Bruce'), 134.

[9] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 ('Codelfa Construction').

[11] [2002] HCA 5; (2002) 240 CLR 45, 63 [39].

[12] [1991] HCA 43; (2011) 66 ALJR 1, 2-3.

[14] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35] ('Electricity Generation').

[15] Codelfa Construction, 350 (citing Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 995-6; ('Reardon Smith')) and at 352. See also Sir Anthony Mason, "Opening Address" (2009) 25 Journal of Contract Law 1, 3.

[18] Codelfa Construction, 352. See also Sir Anthony Mason, "Opening Address" (2009) 25 Journal of Contract Law 1, 3.

[19] Electricity Generation [35], citing Codelfa Construction, 350, in turn citing Reardon Smith 995-6.

[20] Codelfa Construction 352; Reardon Smith 995-6.

[21] Electricity Generation [35], citing Re Golden Key Ltd [2009] EWCA Civ 636 [28].

[22] Electricity Generation [35], citing Zhu v Treasurer of New South Wales [2004] HCA 56; (2004) 218 CLR 530 [82].

[23] Electricity Generation [35], citing Re Golden Key Ltd [2009] EWCA Civ 636 [28].

[24] [2011] HCA 45; (2011) 282 ALR 604.

[25] [6(r) and (s)] of the Second Further Amended Defence and Counterclaim.

[27] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283.

[28] D111 of Defendant's exhibits to witness statements.

[29] D124 of Defendant's exhibits to witness statements.

[30] Transcript of hearing, Re Adaz Nominees Pty Ltd (30 August 2017) T541.

[31] Transcript of hearing, Re Adaz Nominees Pty Ltd (22 August 2017) T151.

[32] Email dated 26 August 2016; Exhibit D42.

[33] Transcript of hearing, Re Adaz Nominees Pty Ltd (30 August 2017) T480, L11; T482, L25.

[35] Transcript of hearing, Re Adaz Nominees Pty Ltd (30 August 2017) T481, L13 - T482, L24.

[38] Tabs 2 and 3, and index of Exhibit P7.

[39] Tabs 5 and 6, and index of Exhibit P7.

[40] Tabs 4 and 7, and index of Exhibit P7.

[46] Tab 14 of Exhibit P7. See also Accountants report of 19 October 2015 at Tab 9 of Exhibit P7.

[47] Index to Exhibit P7; updated witness statement of Mr Skinner [33] Exhibit P52.

[58] Transcript of hearing, Re Adaz Nominees Pty Ltd (4 September 2017) T693.

[59] Transcript of hearing, Re Adaz Nominees Pty Ltd (4 September 2017) T694; 2815.

[61] Transcript of hearing, Re Adaz Nominees Pty Ltd (4 September 2017) T697; Exhibit P7, 1738. Tab 17.

[62] Tab 17 of Exhibit P7; email dated 28 April 2016.

[63] See Mr Keeghan's witness statement dated 19 December 2016 [77]; and Mr Skinner's witness statement dated 8 August 2017 [31].

[64] Transcript of hearing, Re Adaz Nominees Pty Ltd (4 September 2017) T6987.

[65] Tab 27 of Exhibit P7; Exhibit D14.

[66] See tabs 15, 21 and 25 of Exhibit P7.

[67] Transcript of hearing, Re Adaz Nominees Pty Ltd (25 August 2017) T366-397.